In the union budget 2019, the government has announced an incentive for purchase electric vehicle. In the budget speech, the finance minister has stated that advanced battery and registered e-vehicles will be incentivized under the scheme. A new Section 80EEB has been introduced allowing a deduction for interest paid on loan taken for the purchase of electric vehicles from the AY 2020-21.

The 2019 budget attempted to give some relief to taxpayers by bringing in two new sections:

What is Section 80EEB?

Section 80EEB gives tax deductions of up to ₹1,50,000 on interest paid on loan amount on the purchase of electric vehicle. The deduction will be available for both personal and/or business purposes. The deduction under this Section would be available till the repayment of loan.

However, there are some conditions attached to Section 80EEB deduction. These are as follows:

  • Loan should be taken for purchase of an electric vehicle
  • This exemption can be taken for two wheelers as well as for three and four wheeler
  • All the EV loans sanctioned between 1 April 2019 and 31 March 2023 will be considered under section 80EEB.
  • The assessee should be an individual.
  • Loan should must be taken from a financial institution or a non banking financial company.
  • Any individual can only avail of the benefits of this section if he has not owned an EV before.
  • Section 80EEB is effected from FY 2019-2020.

Along with introducing Section 80EEB, the government has also slashed GST on electric vehicles from 12% to 5%.

Quantum of deduction-

Maximum Rs 1,50,000 or the interest amount whichever is lower in any financial year.

What is the meaning of financial institution?

The meaning of financial institution is as follows:

  • A bank or other financial institution covered by the 1949 Banking Regulation Act, or
  • Any bank or organization that falls under the definition of the Act's Section 51, or
  • Any NBFC accepting deposits, or
  • A systemically significant non-deposit taking non-banking financial company is one that is registered with the RBI and has total assets of at least Rs 500 crore as of the most recent audited balance sheet.

What is the meaning of Electric Vehicle?

A vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle. The vehicle should have electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

Example: The details are listed below.

  • A loan was obtained to buy an electric vehicle.
  • Loan availed during FY 2019–20
  • Rs 2,00,000 in total interest paid during the year
  • Loan taken from a close relative.

Since the loan was obtained from a family, no interest deduction is permitted in the situation mentioned above.

However, if a loan had been obtained in the aforementioned scenario from a financial institution, the total deduction allowed by Section 80EEB would have been Rs 1,50,000.

ILLUSTRATION:

The following are the particulars relating to Mr. Yash and Mr. Abhishek salaried individuals, for A.Y.2022-23.

PARTICULARS MR. YASH MR. ABHISHEK

Amount of loan taken

20 lakhs

12 lakhs

Loan taken from

Deposit taking NBFC

Public sector bank

Date of sanction of loan

01.04.2020

30.03.2019

Date of disbursement of loan

01.05.2020

01.05.2019

Cost of E-vehicle

25 lakhs

18 lakhs

Rate of interest

10%p.a

10%p.a

Compute the amount of deduction (if any) allowable under the provisions of the Income-tax Act, 1961 for A.Y.2022-23 in the hands of to Mr. Yash and Mr. Abhishek. Assume that there has been no principal repayment in respect of any of the above loans upto 31.03.2022.

SOLUTION

PARTICULARS AMOUNT (Rs)

Mr. Yash

  

Interest deduction for A.Y 2022-23

  

a) Deduction under Chapter VI-A from Gross Total Income

  

Deduction u/s 80EEB

  

(20 lakhs x 10% = 2,00,000, restricted to 1,50,000, being the maximum permissible deduction)

2,00,000
   

Mr. Abhishek

 

Interest deduction for A.Y 2022-23

  

Deduction u/s 80EEB

  

Deduction u/s 80EEB is not permissible since loan was sanctioned before 1.4.2019.

  
Conclusion

In conclusion, it can be said that people looking for a cleaner and cheaper mode of transport should consider electric vehicles as they are not only cost-effective but also futuristic. As fossil fuels are becoming costlier, electric vehicles are the way to go!

With the government’s support in terms of tax exemption for loans, the vehicles are also more affordable than earlier, making it all the more valuable for individuals looking to own their first car.

However, the conditions of the new exemption clauses must be carefully read and considered before buying an electric vehicle. It would be best if you did not base a large chunk of your decision only on the available exemptions.